www.rillo.ee




                TMO1180 - Strategic Organizational
                      Diagnosis and Design
           ...
www.rillo.ee


                           Reminder - Key Dates
               • 21.10 - deadline for course project
      ...
"New" Forms - and some "Crazy"
www.rillo.ee



                              Names ... 
               a) Networked organ...
www.rillo.ee


               Networked Organization (Drucker)
www.rillo.ee


               Learning Organization (Senge)
Virtual Corporation (Davidow & Malone,
www.rillo.ee



                                 1992)
                            ...
www.rillo.ee


               Relational Organization (Keene, 1991)
                                  • The new enterprise...
Boundaryless Organization
www.rillo.ee



                     (Ashekenas)
                         • This book grew out o...
www.rillo.ee


               Crazy Organization (Peters)
                             • Well ... it is Tom Peters 
www.rillo.ee


               Cluster Organization (Mills)
                             • This is a multidimensional
     ...
www.rillo.ee


               Human Networking (Savage)
                            • Hierarchies are levelled
           ...
www.rillo.ee


               Democratic corporation (Ackoff, 1994)
                                  • Espouses the stake...
Centerless Corporation (Pasternack &
www.rillo.ee



                           Viscio, 1998)
                            ...
www.rillo.ee


               Intelligent enterprise (Quinn, 1992)
                               • Successful companies o...
Re-engineered corporation (Hammer &
www.rillo.ee



                         Champy, 1993)
                               ...
Customer Centric Organization
www.rillo.ee



                     (Galbraith, 2002)
                              • A nic...
Back To Reality - Start with Basics
www.rillo.ee



                         - Some Key Terms
               • Three Gener...
Terms -
www.rillo.ee



                  Collaborative Communities of Firms
               1. Bilateral collaboration – T...
www.rillo.ee


                                          U-FORMS
               • Functional (or U-Form) structures group ...
www.rillo.ee


                                               M-FORMS
               •   A Multi-divisional structure is d...
www.rillo.ee


                                  Types of M-form
                Cooperative Form         SBU Form        ...
www.rillo.ee


                                             H-Form
               • Holding or Conglomerate structures see...
Three Generic Forms of Organizational
www.rillo.ee



                   Governance in H-Form Firms
               • Marke...
Some Statistics of MNCs in Europe -
www.rillo.ee



                    Waves of "Centralization" of M-Form ...
          ...
www.rillo.ee


                Any Ideas about Statistics in Estonia?
               • No idea!
               • Potential...
What Aspects of "Design" are there in
www.rillo.ee



                            Business?
               • We start off ...
One Possibility would be to Start at
www.rillo.ee



                Micro and Sort out Processes ...




                ...
www.rillo.ee
www.rillo.ee
               How to Set Up a Business On-line Distribution Store?
Potential View - Look at the Structure as a
www.rillo.ee



                       System of Value Creation




          ...
www.rillo.ee
                  The Other Possibility would be to Think About the
                  Requirements that the S...
www.rillo.ee


                   Lets Consider the Following Case ...
               •   In one case, dating back to 1997...
Dilemma - what to do when You are Stuck-in-the-Middle?
www.rillo.ee

                    Ex. - Firm where Operations and M...
www.rillo.ee




               The organization form should coincide
               with the aspect structure that is the...
www.rillo.ee


                                 Some Examples
               • Efficient manufacturing was most critical f...
www.rillo.ee
                Aspect Structures all are Convergent with the
               Business Unit as Management Cont...
Relations between them -
www.rillo.ee



                         Enablers and Scarcities
               • Emergence of th...
www.rillo.ee


                Comment on Scarcities and Enablers!
               • Interesting: "What kinds of new struct...
www.rillo.ee


                     Hence the Firm has to Answer:
               1. What activities are core in creating v...
www.rillo.ee


               Value ...




                           Fjeldstad and Andersen 2003
www.rillo.ee


               Value Net (Parolini)
www.rillo.ee


               Value Net Paradigm ...
www.rillo.ee

                                          Case Study (1/2)
               •   A division of the MNC is organ...
www.rillo.ee

                                      Case Study (2/2)
               • At a certain moment the managers of ...
www.rillo.ee


                                     Solution
               • Define each separate project (that develops
...
Building Blocks of Organizations
www.rillo.ee



                          Nowadays




                                  ...
www.rillo.ee
               Yes, we have lots of different organizations out there
                                       ...
www.rillo.ee




               J. Strikwerda (2005) The Logic of the Operating Model under Changing Scarcities and New Te...
www.rillo.ee


                         "Verlag" - Medieval Europe
               • Entrepreneur, through contracting supp...
Replication Design
www.rillo.ee



               (How to "McDonalds" an organization?)
               • Sometimes the iss...
www.rillo.ee




               Any questions?
               The most important?
               What will you remember?

...
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Strategic Organizational Diagnosis and Design 03 lecture - Organizational Design Fads and Value Perspective of Organizational Design

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Strategic Organizational Diagnosis and Design 03 lecture - Organizational Design Fads and Value Perspective of Organizational Design

  1. 1. www.rillo.ee TMO1180 - Strategic Organizational Diagnosis and Design 3rd lecture - Organizational Design Fads and Value Perspective of Organizational Design Marko Rillo Tallinn University of Technology Tallinn School of Economics and Business Administration
  2. 2. www.rillo.ee Reminder - Key Dates • 21.10 - deadline for course project • 28.10 - presentations
  3. 3. "New" Forms - and some "Crazy" www.rillo.ee Names ...  a) Networked organization (Drucker, 1988) b) Learning organization (Senge, 1990) c) Virtual corporation (Davidow & Malone, 1992) d) Relational organization (Keene, 1991) e) Boundaryless Organization (Ashkenas et al., 2002) f) Crazy organization (Peters, 1992) g) Cluster organization (Mills, 1991) h) Human networking (Savage) i) Democratic corporation (Ackoff, 1994) j) Centerless Corporation (Pasternack & Viscio, 1998) k) Intelligent enterprise (Quinn, 1992) l) Re-engineered corporation (Hammer & Champy, 1993) m) Customer centric organization (Galbraith, 2002) J. Strikwerda (2005)
  4. 4. www.rillo.ee Networked Organization (Drucker)
  5. 5. www.rillo.ee Learning Organization (Senge)
  6. 6. Virtual Corporation (Davidow & Malone, www.rillo.ee 1992) • Customer-driven company of the future – Ex. looks at how Dell has made it possible to get instant mass customization • Deliver instantaneous, customized services and products
  7. 7. www.rillo.ee Relational Organization (Keene, 1991) • The new enterprise is a network of distributed teams that act as clients and servers for each other
  8. 8. Boundaryless Organization www.rillo.ee (Ashekenas) • This book grew out of work done by the authors as consultants hired by General Electric's CEO Jack Welch, who first approached them with the concept of a "boundaryless organization." • Applying what they learned in the effort to transform the way GE did business and from numerous other examples, they consider the vertical, horizontal, external, and geographic boundaries that exist for organizations. • The authors provide tools to help measure the degree to which boundaries exist, demonstrate the consequences of boundaries, and identify steps to eliminate them
  9. 9. www.rillo.ee Crazy Organization (Peters) • Well ... it is Tom Peters 
  10. 10. www.rillo.ee Cluster Organization (Mills) • This is a multidimensional concept that, in part, harkens back to elements of matrix organization • But it also capitalizes on the latest in technology and shifts primary accountability and initiative away from top management to individuals
  11. 11. www.rillo.ee Human Networking (Savage) • Hierarchies are levelled and the imagery of networks and spider webs butts out yesterday's pyramids
  12. 12. www.rillo.ee Democratic corporation (Ackoff, 1994) • Espouses the stakeholder theory of the firm, in which employees, suppliers, customers, investors, creditors, debtors and government all play a role in helping a company to grow and develop • One of the good examples of "revolutionizing" org. design 
  13. 13. Centerless Corporation (Pasternack & www.rillo.ee Viscio, 1998) • Booz-Allen & Hamilton's consultants: • Decreasing bureaucracy and increasing communication prove a successful alternative to the top-down style of central management
  14. 14. www.rillo.ee Intelligent enterprise (Quinn, 1992) • Successful companies of the 90's will derive their competitive edge not from ephemerally superior products but from a deep understanding of a few highly developed knowledge and service based core competencies • Roots in RBV: – technological sophistication, – better knowledge bases, – more creative customer responsiveness, – unsurpassed management of human and intellectual capital that competitors cannot reproduce
  15. 15. Re-engineered corporation (Hammer & www.rillo.ee Champy, 1993) • Management consultants wrote: post-industrial companies must be "reengineered," which necessitates starting anew, going back to the beginning to invent a better way of accomplishing tasks • To reduce inventories, and empowering employees so that decision-making "becomes part of the work."
  16. 16. Customer Centric Organization www.rillo.ee (Galbraith, 2002) • A nice practice-oriented textbook that provides a hands-on approach on how to create organizations
  17. 17. Back To Reality - Start with Basics www.rillo.ee - Some Key Terms • Three Generic Organizational Structures – Unitary form (functional) U-form – Multidivision form - M-form (Williamson 1975) – Holding- or conglomerate structure - H-Forms • Hybrid Organizational Structures – Matrix structure – Team-based structure
  18. 18. Terms - www.rillo.ee Collaborative Communities of Firms 1. Bilateral collaboration – This type of innovation occurs when a member firm collaborates with its customers on new solutions, perhaps using consulting advice from the node. 2. Direct collaboration – Two or more member firms work together closely on the development of new solutions. 3. Pooled collaboration –Member firms supply ideas, information, and experiences to a central database that is accessible by other member firms to pursue innovation projects. 4. External collaboration – A member firm works with a non-member firm on a „one-off‟ innovation project.
  19. 19. www.rillo.ee U-FORMS • Functional (or U-Form) structures group on the basis of their common expertise/experience or because they use the same resources or focus on the same activities • Increased specialization • Cannot handle the complexity of • Economies of scale in multiple activities well monitoring • Subgoal pursuit problems can • Critical decision-making is become acute centralized in one “peak” person • Absence of objective measures of performance • Operations can divert attention from strategic/ competitive/ entrepreneurial issues Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
  20. 20. www.rillo.ee M-FORMS • A Multi-divisional structure is designed to manage diversification while controlling bureaucratic costs and control-loss problems • M-Forms decentralizes operating decision-making to the business unit/division level where all necessary competitive and operational decisions are made. • Strategic decision-making responsibility is retained at the headquarters level. The HQ also monitors division‟s performance by using both objective market/output measures and subjective performance measures . • Uses objective market-output • Introduces additional levels of measures, bureaucratic controls, and hierarchy clan/cultural controls • Opportunism and information • Encourages exploiting of economies distortion problems of scope across divisions • Myopic focus • Frees corporate to focus on strategic • Divisions may compete at the concerns expense of cooperating • Facilitates diversification and growth • Transfer pricing battles Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
  21. 21. www.rillo.ee Types of M-form Cooperative Form SBU Form Competitive Form • Related- • Related-Linked - • Unrelated - Constrained - divisions provide divisions are fully divisions co- related services, independent in their operate in delivery of certain but are fully activities and are services, have autonomous frequently certain limits of • Examples? encouraged to autonomy, certain compete with the functions are offerings of the centralized other divisions • Examples? • Examples? Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
  22. 22. www.rillo.ee H-Form • Holding or Conglomerate structures seek to exploit the advantages of internal capital markets • How do you get people to achieve organizational goals in the most efficient way possible? • Promotes entrepreneurial • Lack of common strategic focus approach • Opportunism • Unrestrained self-interest • Frees corporate to focus on • Error and mistakes strategic concerns • Ambiguity in measuring • Facilitates diversification and performance growth • Complexity/Inability in giving unambiguous direction Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
  23. 23. Three Generic Forms of Organizational www.rillo.ee Governance in H-Form Firms • Market/Output-based Incentive Schemes – Profit goals – Output quotas • Bureaucratic Monitoring and Control Schemes – Rules and procedures – Standardization and monitoring • Clan or Culture-based Control Schemes – Norms, values, socialization – Internalization of organizational goals Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
  24. 24. Some Statistics of MNCs in Europe - www.rillo.ee Waves of "Centralization" of M-Form ... Structure Type No. of co-s % Co-operational 132 51,4 CEO division Traditional division 66 25,7 HR Mkt. Finance IT Support R&D Holding 30 11,7 Business1 Business2 Functional 15 5,8 Matrix 14 5,4 Prod. Support R&D Total 257 100 • Better control and leadership • Reduction of double work • Cost - economies of scope and • Cross-sales scale • Increased profitability University of St.Gallen, Top 300 German, Austrian ja Swiss company study 2004 - Sebastian Raisch
  25. 25. www.rillo.ee Any Ideas about Statistics in Estonia? • No idea! • Potential study for master thesis?  • What organizational forms / structural contingencies are there among Estonian ÄP Top500 firms?
  26. 26. What Aspects of "Design" are there in www.rillo.ee Business? • We start off by mapping and designing our business model • We design our strategy on the basis of our key understanding of the business idea • Thereafter we design our processes and structures There are lots of possibilities for doing that, ex ...
  27. 27. One Possibility would be to Start at www.rillo.ee Micro and Sort out Processes ... Bremner, Knipfer, Latreille (2006) - Better operating models for financial institutions. McKinsey on IT. Winter 2006, p. 4
  28. 28. www.rillo.ee
  29. 29. www.rillo.ee How to Set Up a Business On-line Distribution Store?
  30. 30. Potential View - Look at the Structure as a www.rillo.ee System of Value Creation J. Strikwerda (2005), p. 39.
  31. 31. www.rillo.ee The Other Possibility would be to Think About the Requirements that the System Needs to Satisfy ... Economic requirements: Fit-to-market: • Type and availability of human • Patterns of consumer resources, Type of knowledge exploited, Economies of scale, preferences, buying behavior; Economies of scope, Economies Availability of alternative of speed, Purchasing power, distribution channels; Link Uniqueness of resources, between products/services and Modularity, standards, Communication costs, Market distribution channels; Need for efficiency mix-match flexibility J. Strikwerda (2005), p. 19.
  32. 32. www.rillo.ee Lets Consider the Following Case ... • In one case, dating back to 1997, a European firm produced electrical and electronic products for three types of markets: consumer markets, so called institutional markets (hospitals, schools, prisons, etc.) and professional markets (TV studio‟s, stadiums, etc.) • These three markets by volume, growth, distributors, prices mechanism, degree of maturity, preferred technology, market share, competition, were separate markets and had to be dealt with in that way. • This firm used two types of technologies, a conventional one, using a specific raw material for which this firm was the single largest global buyer, and a modern high tech product, for which this firm also was the single largest global buyer. • In addition to that, considerable economies of scale and scope were to be exploited due to the volume of production and due to knowledge that was applicable to all two types of technology and all three markets. The then management was stuck in the issue whether to organize the firm (that till then functionally organized, causing undue coordination costs) in two business units based on technology or in three business units based on the three markets • Look at the scheme on the next page for graphical description of the case ... J. Strikwerda (2005), p. 20.
  33. 33. Dilemma - what to do when You are Stuck-in-the-Middle? www.rillo.ee Ex. - Firm where Operations and Market Fit don't Meet. Should we replace functional structure with 2-division or 3-divisional? 1) Consumer segment 2) Institutional market: hospitals, schools, prisons 3) Professional markets: TV studios, stadiums Conventional technology High-tech technology J. Strikwerda (2005), p. 20.
  34. 34. www.rillo.ee The organization form should coincide with the aspect structure that is the most critical for the value creation of the firm, respectively its success in the market! RELY ON THE MOST IMPORTANT ASPECT STRUCTURE!
  35. 35. www.rillo.ee Some Examples • Efficient manufacturing was most critical for success when manufacturing capability was scarce • When Sloan understood that producing different cars for different consumer segments as defined by income was critical for success - he based the divisions on market segments defined by consumer income • Walt-Disney exploits concepts, which are exploited through multiple platforms, which defines its operating model • Professional service firms, pursue a key-account management strategy - business units are suppliers to accounts
  36. 36. www.rillo.ee Aspect Structures all are Convergent with the Business Unit as Management Control Structure 1. Legal structure 2. Product/services structures (across functional departments) 3. Delivery-structures, operational processes 4. Project structures (innovation, development, co-engineering) 5. Informal, social structures, etnical structures 6. Functional structures (accounting, HRM) 7. Knowledge structures (content)  8. Patterns of routines and competencies 9. Information structures (data) 10. Technological structures, e.g. generic technologies 11. Geographical structures 13. Account structures (account management) 14. Fiscal and financial structures (international cash management) J. Strikwerda (2005), p. 20.
  37. 37. Relations between them - www.rillo.ee Enablers and Scarcities • Emergence of the major, vertically integrated, multi- divisional companies at the beginning of the twentieth century is closely connected to innovations in techniques for management accounting (Jensen 1998) • Due to changing scarcities in the economy - importance of aspect structure may change over time and hence hence the need to adapt the operating model of the firm
  38. 38. www.rillo.ee Comment on Scarcities and Enablers! • Interesting: "What kinds of new structures are enabled by social networking?" • What do you think - what scarcities we have today? And what kinds of structures should be foster in order to overcome them?
  39. 39. www.rillo.ee Hence the Firm has to Answer: 1. What activities are core in creating value and in which way? 2. Which activities are needed to ensure that the value the firm creates also is captured by the firm? 3. What activities are needed to defend the core value creating activities of the firm?
  40. 40. www.rillo.ee Value ... Fjeldstad and Andersen 2003
  41. 41. www.rillo.ee Value Net (Parolini)
  42. 42. www.rillo.ee Value Net Paradigm ...
  43. 43. www.rillo.ee Case Study (1/2) • A division of the MNC is organized in four business units each with a distinct technology and subsequent products. Within the division of the multinational the business units are profit centers. • These products are components and subsystems that are sold to a third party, who assembles these components and subsystems, into a consumer product. These consumer products enjoy a high brand image, are innovative by technology and design. The innovativeness (value) of the third party results in organizing a number of co-engineering teams for various product types. • Each of the MNC 4 BU-s contributes to each of the co-engineering teams by providing ideas, making available technological know how and placing engineers for development in the teams. • Co-engineering teams produce innovative designs for components and subsystems, which then are mass manufactured and supplied to the third party by each of the business units. • The third party is willing to pay a higher price, partly because due to the innovative components and subsystems it can ask a higher price in the market, but also because the MNC has agreed to sell components exclusively to the third party. J. Strikwerda (2005).
  44. 44. www.rillo.ee Case Study (2/2) • At a certain moment the managers of the MNC 4 BU-s find themselves in disagreement on the allocation of costs of the co-engineering teams - due to the complexity of the processes such teams have an overhead in terms of project managers, commercial & contracting support etc. • Also a disagreement rose about inputs of the individual MNC BU-s in the co- engineering teams and the benefits resulting for each of the business units. • The co-engineer teams not just produced separate components and subsystems, they produced a coherent, integrated system of components and subsystems, of which the value for the third party was more then the sum of the values of the separate components and sub-systems. • Since these co-engineering teams also had engineers from the third party, the third party is entitled to a part of the output of the co-engineering teams as well. • What do you think about the design of the organization and what should be done differently? J. Strikwerda (2005).
  45. 45. www.rillo.ee Solution • Define each separate project (that develops integrated systems for the third party) as a profit center. – Engineering phase being the investment phase – The phase of manufacturing and supplying the systems the profit phase
  46. 46. Building Blocks of Organizations www.rillo.ee Nowadays J. Strikwerda (2005).
  47. 47. www.rillo.ee Yes, we have lots of different organizations out there ... 
  48. 48. www.rillo.ee J. Strikwerda (2005) The Logic of the Operating Model under Changing Scarcities and New Technologies: An Exercise in the Foundations of Business Administration? Universiteit van Amsterdam - Amsterdam Business School; Nolan Norton Institute, p. 12.
  49. 49. www.rillo.ee "Verlag" - Medieval Europe • Entrepreneur, through contracting suppliers, artisans like weapon smiths, transporters, most sea captains, warehouses etc, orchestrated a manufacturing and supply chain. • Examples are the Trip brothers in the seventeenth century in Amsterdam, the publishing industry, the apparel industry (Uzzi, 1997), etc. • The entrepreneur in this model, called Verleger (German: "publisher"), earns rents by running a business without owning the production factors like factories, equipment • Although he takes ownership of the raw materials, intermediate products and final products J. Strikwerda (2005).
  50. 50. Replication Design www.rillo.ee (How to "McDonalds" an organization?) • Sometimes the issue is not so much value creation, but exploitation • Hence - an unit needs to be copied across geographical domains Winter & Szulanski (2001)
  51. 51. www.rillo.ee Any questions? The most important? What will you remember? THANKS FOR YOUR TIME

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